On one hand, you have a person who seems to genuinely care about the security of your company (since he gave you details), who had both the chance and the opportunity to use the access to leak stuff that could have been quite damaging to the company - yet didn't, and willfully meets the companies representatives and corporate enquirer.
On the other hand, you have a company who seems to have real problem with its security procedures, an improving but frail image as game platform (not so many dead xbox memes at the moment), and a way to manage problems like an elephant in a porcelain shop.
What exactly did anyone in his right mind hoped such a raid would do??? Let's see, for the potential "benefit" effects of frightening other hackers, it further damaged microsoft reputation and it will turn a cooperative hacker group into a revenge-seeking foe. What did they got??? In the day and age of cloud storage, what they took during the raid was at best zeroed harddrives previously containing a copy of the information they wanted that could now be anywhere - and they pissed off the guy who put that information out of they reach.
Strategically, all I see just looks like a terrible move.
Now think for a second - what if the guy puts everything he downloaded (sourcecode, etc) in a torrent, or pass the pdfs they were so willing to protect on wikileaks? What if he start using his knowledge to create not "giant hacks", but small hacks that could masquerade as bugs ? (say randomly turn off live access, hijack random xbox live accounts, etc)
What if he commits suicide ? After all, he said he lost everything! Seriously all this is at best a PR nightmare, and at worst the first step into a Sony PSN style catastrophy. Some people should be fired, they forgot the basic axiom :
DO NOT TAUNT THOSE WHO CAN DAMAGE YOU.
It will be fun watching anonymous attack xbox live in the following days, then the various bad things that will happen - no, not fun, sad. What will happen is so evident it's a tragedy.
Critics are easy, so I'll offer my 5 cents suggestion too. The right move in this case? Give the hackers a psychological assessment, a background check, then a big fat check to replace the bozos who were in charge of your security and failed. Give them more to loose- money, their dream job, reputation.
Just don't turn them into enemies who have nothing to lose.